A State of Emergency
If you were given the perfect country, could you mess it up as bad as California? Begin with fertile, productive, well-irrigated soils capable of growing just about anything. Add vast agricultural tracts and miles upon miles of wine country with lush, bountiful vineyards. Include majestic mountain ranges containing rich deposits of gold, silver and other useful metals, and covered with thick, immense forests with every type of timber imaginable. Toss in critical navigable rivers to move these resources to market. Insert vast oil and natural gas deposits while you are at it, along with wind, water, geothermal and solar resources. Give it a long coastline with beautiful beaches, plentiful fresh water, ocean fisheries, many natural harbors, a well-connected transportation grid with first-class roads, rails and airports too.
Bestow all the natural building blocks necessary for a well-balanced, diversified, leading economy that is virtually guaranteed to bring unparalleled prosperity to your people—a smorgasbord of natural blessings. Then on top of it all, throw in days spent skiing at sunrise on Lake Tahoe and swimming at sunset in San Francisco the same day. This is the Golden State.
Yet California is imploding. And it is dragging the rest of the country with it.
California is home to America’s leading manufacturing belt, the nation’s largest high-tech center (Silicon Valley), and one of its most productive agricultural areas (the Central Valley). As a stand-alone economy, it is bigger than Canada, Brazil, India and even Russia. It is also the most populous state, with one in eight Americans calling California home.
But just look at the next headline you see that says “California.” Whether it’s an article on finance, economics, government, crime, morals or some other subject, it’s sure to be announcing bad news.
The glaring question is: What went wrong? This is important to answer. With California being America’s most important economy and most populous state, what happens there can’t help but affect the rest of the nation. As famed investor Warren Buffet once remarked, “If California prospers, the country prospers,” but “if California has troubles, the country has troubles.”
Sadly, California is going down quickly.
Agricultural Collapse
“California’s Central Valley is our nation’s agricultural engine, and unemployment here is devastating the economy and hurting the people of California,” Gov. Arnold Schwarzenegger said in June. “These are dire circumstances—no water means no work—and no work means people cannot feed their families. This drought is truly an emergency ….” Although the Central Valley contains less than 1 percent of the total farmland in the United States, it produces close to 8 percent of the nation’s agricultural output by value.
Schwarzenegger declared California’s Fresno County a disaster zone and took the extreme step of asking President Barack Obama to declare the region a federal disaster zone as well. The declaration followed a string of executive orders issued to save an agriculture sector on the brink. On June 4, 2008, Schwarzenegger issued an executive order proclaiming a statewide drought. Four days later, he ratcheted it up to a state of emergency for 9 of 18 Central Valley counties. Then, this February, he proclaimed a state of emergency for the entire state.
California received only 53 percent of its normal rainfall in 2007 and 58 percent in 2008. Up to June this year, it had received only 77 percent of normal volumes. Around 450,000 acres of normally prime agricultural land are lying fallow this year in California due to water shortages. And the drought is an emergency for more than just the farmers. Before the Spanish arrived in 1769, there were 12 large natural lakes in California. Today, four have been completely de-watered for agriculture. Man-made reservoirs are running low, and sedimentation is reducing even their remaining lifespans. Los Angeles announced in February what was, in effect, water rationing for the first time in its 200-plus-year history.
Fisheries in Crisis
On April 21, Governor Schwarzenegger also renewed a state of emergency for California’s fishing industry, citing a “commercial fishery failure due to a fishery resource disaster.” This is the second year in a row that both the commercial and recreational fisheries will be closed statewide. Last year’s declaration, which stemmed from the sudden collapse of the Chinook salmon in California’s Sacramento River, was the first such ban in 160 years.
California has a rich history of fishing. Back in the winter of 1883 to 1884, more than 700,000 salmon from the Monterey Bay Delta alone were caught and processed. But today, there are no commercial fish canneries in operation—a result of habitat destruction. There are other reasons California’s fisheries are suffering as well.
River water volumes are plummeting due to irrigation and other industrial use. As less water reaches the oceans, the river deltas get inundated with saline sea water, destroying ecosystems. Fish populations struggle to make it to open ocean water. Lower water volumes also provide less nutrients and feed for fish populations. Toxic chemical discharges take their toll too.
“It breaks my heart to report this,” said author and fisheries sustainability expert Alex Rose. “I believe we are at the tipping point. The Pacific salmon fishery may very well go the way of the Grand Banks cod.”
“[I]n a generation we’ve gone from unbelievable abundance to a crisis,” he said.
Suffocating Environmental Regulation
A crisis of another sort is strangling Californian industries. California has some of the most progressive environmental laws in the world. It needs environmental laws, because vast swaths of the state are a polluted mess.
However, misdirected and poorly timed environmentalism is also inhibiting job growth and sending jobs out of state—and out of country.
The New York Times reported that Californian businesses are being slammed by new requirements to curb carbon dioxide emissions at a time when they are already struggling to survive in a very tough economy. In 2006, the state passed laws to curb carbon dioxide emissions from all economic sectors, including transportation, manufacturing and real-estate development. The result: People are paying more to travel and make purchases, and manufacturers are moving out of state or to places like China, taking jobs with them. And just look at the real-estate industry.
CalPortland’s formerly profitable Mount Slover limestone cement facility is a powerful example. The state of California says the company must reduce carbon dioxide emissions by 12 percent per ton of cement. The company estimates that to retrofit its operations will cost in excess of $220 million—for just one plant. There is not nearly enough limestone in its quarry to justify such an expense. This plant, which has produced cement for over 100 years, will probably be shut down. Workers will be laid off. The state will take a tax revenue hit. Future shipments of cement will probably be imported from Mexico.
Every manufacturer across the state will be subject to what is essentially a massive carbon tax. So multiply CalPortland’s problems by the thousands.
All this environmental regulation and strangulation couldn’t come at a much worse time for California.
Economic Collapse
It is economic judgment day in California. In spite of its natural resources, the state’s economy and budget are in a complete shambles.
On April 17, Governor Schwarzenegger declared a state of emergency for unemployment. He said that the “current and continuing economic downturn and resulting unemployment” represented “conditions of extreme peril to the safety of persons and property” in California. At that time, state unemployment was 11.2 percent—which was then the highest for the state since statistics began to be collected, and far above the national average of 8.5 percent. Since then, the situation has worsened. As of June, unemployment stood at a new record high: 11.6 percent. And the real unemployment rate, after including those people who are stuck working part-time and those who have given up looking for work, is closer to 20 percent. The unemployment rate may be even greater in counties such as Los Angeles, due to losses in what the Los Angeles Business Journal calls “informal employment”—involving cash for hire, off-company books, and uncounted illegal workers.
And the unemployment rate is probably about to get dramatically worse, especially since the state budget is in such a big hole. Moody’s ratings agency joined Standard & Poor’s investors service and Fitch Ratings in warning the state that if it does not resolve its enormous budget woes, the agency will be forced to lower the state’s credit rating several notches again. The state’s credit rating largely determines the cost of borrowing money from the market. In California’s case, it already has the worst rating of any state in the country and is having extreme difficulty finding any lenders at a price it can afford.
The federal government can’t necessarily be relied on for a bailout either. After bailing out an insurance company, a credit card company, Fannie Mae and Freddie Mac, underwater homeowners, the Wall Street big banks, General Motors and Chrysler, President Obama said in May that he would not bail out states and advised California to “make some very difficult choices.”
In July, California began issuing over $3 billion worth of ious to contractors and state employees in lieu of payments owed. But California is seen as such a credit risk, many big banks, including Bank of America, Wells Fargo & Co., J.P. Morgan Chase & Co. have refused to cash California’s ious.
Massive spending cuts will be needed to cover the projected $24 billion deficit—which means thousands more teachers, police, firemen and garbage collectors will lose their jobs. The Anderson Forecast projects that Schwarzenegger’s budget cuts will eventually result in 64,000 job cuts from state government plus countless private-sector and local government jobs.
The slowing economy is reflected in the now eerily quiet great ports of Los Angeles, Long Beach and San Francisco. Clobbered by the weak global economy, exports from California fell 25.5 percent in April from a year earlier. Massive tankers sit idle. Air traffic is down too. Exports from San Francisco International Airport plummeted 34 percent.
Green shoots are nowhere to be found, according to Money and Markets’ Martin Weiss. He says California is home to the highest concentration of 90-days-past-due mortgages in the country. And the number of foreclosures is continuing to skyrocket. So the housing and real-estate industries that provided the jobs during the boom years are probably not coming back anytime soon.
“California’s day of reckoning is here,” Schwarzenegger told the state legislature in June. “Our wallet is empty. Our bank is closed. Our credit is dried up.”
Immigration Problem
California is home to an estimated 2.7 million illegal immigrants—an astounding 7 percent of the state’s population. While a low-paid workforce comes with some benefits for the state, the net costs are substantial.
According to a Los Angeles Times report, the state spends billions of dollars per year on illegal immigration costs—primarily for prisons and jails, schools and emergency rooms. Then there are the costs to other parts of local government, including police and fire protection, highway maintenance, libraries and other public services. Additionally, the state spends hundreds of millions of dollars per year providing welfare for the U.S.-born babies of illegal aliens. And since most illegals hold low-paying jobs and are often paid under the table, the amount paid back to the state in taxes does not nearly cover what the state gives out.
But here is the rub. With the state in such economic distress, employers shedding jobs and banks no longer indiscriminately giving out home mortgages, some illegals are heading back south of the border. And when they go, they take whatever money they have accumulated with them.
California: A Harbinger
As ugly as conditions are in California, they are an indicator of what is to come for the rest of the country. Where did the housing bubble first form? California. Where did the housing bubble first burst? California. Where did the first banks that failed—IndyMac Bank, Countrywide Financial and Washington Mutual—come from? California. Where did the bulk of the job losses first hit? California. What state pioneered the industry-strangling environmental regulations that federal politicians are now seeking to copy? Yes, California too.
California is a leading indicator of state budgetary problems as well. Every single state except North Dakota and Montana faced budget deficits this year. All but four states eventually balanced their budgets, but the reality is that few of those states would have had any hope of balancing their budgets if the federal government hadn’t given them a one-time lump-sum stimulus package of $135 billion. The crisis has only been temporarily postponed. The money will soon be spent, and the state funding gap for fiscal year 2010 alone is projected to be $166 billion. If the economy doesn’t improve, the rest of America will be in the same boat next year that California is in today: “functionally bankrupt,” as one legislator from New Jersey described her state.
And the federal government isn’t in any better shape than the states. That is why President Obama doesn’t want to bail out California. Washington is afraid that if it bails out one state, it will have to bail out them all.
“[P]eople always say that the United States maybe has to bail out California,” noted Schwarzenegger when he declared an economic state of emergency on July 1. But “who is to say that the United States should bail us out? We are actually in much better shape than the United States.”
The scary thing is, he’s right.
What Went Wrong?
The Trumpet has repeatedly written about the many curses California has experienced in recent decades—the fires, the drought, the riots, the earthquakes and so on. Of course, many scoff at the idea that an ever living, supremely powerful God is actually intervening in the affairs of mankind.
Abraham Lincoln didn’t. “I believe,” Lincoln said, “that it is meet and right to recognize and confess the presence of the Almighty Father equally in our triumphs and in those sorrows which we may justly fear are a punishment inflicted upon us for our presumptuous sins to the needful end of our reformation” (emphasis mine). Just as God rewards us for obedience to His laws, He lovingly punishes us for disobedience so we might be reformed, Lincoln said.
It is this God who has set before all of mankind two ways of life: the way of blessings and the way of curses, as it says in Deuteronomy 28. God will not force us to choose His way. But we all must make a choice. And there are consequences, whether good or bad. If we choose the way that results in curses, no amount of wishful thinking will magically transform a curse into a blessing.
In the case of California—and America—we are now experiencing the curses.
But there is hope, and it is found in the reason America had such a lavish array of fantastic physical blessings in the first place. If you believe your Bible, those blessings were a direct result of a promise God made 4,000 years ago to the great patriarch Abraham. Request a free copy of The United States and Britain in Prophecy to see the prophecies of how and why those blessings would be taken away—and of when the loving God would ultimately restore them again to a chastened people.
